Profits Without Production – By Paul Krugman

One lesson from recent economic troubles has been the usefulness of history. Just as the crisis was unfolding, the Harvard economists Carmen Reinhart and Kenneth Rogoff — who unfortunately became famous for their worst work — published a brilliant book with the sarcastic title “This Time Is Different.” Their point, of course, was that there is a strong family resemblance among crises. Indeed, historical parallels — not just to the 1930s, but to Japan in the 1990s, Britain in the 1920s, and more — have been vital guides to the present.

Yet economies do change over time, and sometimes in fundamental ways. So what’s really different about America in the 21st century?

The most significant answer, I’d suggest, is the growing importance of monopoly rents: profits that don’t represent returns on investment, but instead reflect the value of market dominance. Sometimes that dominance seems deserved, sometimes not; but, either way, the growing importance of rents is producing a new disconnect between profits and production and may be a factor prolonging the slump.To see what I’m talking about, consider the differences between the iconic companies of two different eras: General Motors in the 1950s and 1960s, and Apple today.Obviously, G.M. in its heyday had a lot of market power. Nonetheless, the company’s value came largely from its productive capacity: it owned hundreds of factories and employed around 1 percent of the total nonfarm work force.Apple, by contrast, seems barely tethered to the material world. Depending on the vagaries of its stock price, it’s either the highest-valued or the second-highest-valued company in America, but it employs less than 0.05 percent of our workers. To some extent, that’s because it has outsourced almost all its production overseas. But the truth is that the Chinese aren’t making that much money from Apple sales either. To a large extent, the price you pay for an iWhatever is disconnected from the cost of producing the gadget. Apple simply charges what the traffic will bear, and given the strength of its market position, the traffic will bear a lot.Again, I’m not making a moral judgment here. You can argue that Apple earned its special position — although I’m not sure how many would make a similar claim for Microsoft, which made huge profits for many years, let alone for the financial industry, which is also marked by a lot of what look like monopoly rents, and these days accounts for roughly 30 percent of total corporate profits. Anyway, whether corporations deserve their privileged status or not, the economy is affected, and not in a good way, when profits increasingly reflect market power rather than production.Here’s an example. As many economists have lately been pointing out, these days the old story about rising inequality, in which it was driven by a growing premium on skill, has lost whatever relevance it may have had. Since around 2000, the big story has, instead, been one of a sharp shift in the distribution of income away from wages in general, and toward profits. But here’s the puzzle: Since profits are high while borrowing costs are low, why aren’t we seeing a boom in business investment? And, no, investment isn’t depressed because President Obama has hurt the feelings of business leaders or because they’re terrified by the prospect of universal health insurance.Well, there’s no puzzle here if rising profits reflect rents, not returns on investment. A monopolist can, after all, be highly profitable yet see no good reason to expand its productive capacity. And Apple again provides a case in point: It is hugely profitable, yet it’s sitting on a giant pile of cash, which it evidently sees no need to reinvest in its business.Or to put it differently, rising monopoly rents can and arguably have had the effect of simultaneously depressing both wages and the perceived return on investment.You might suspect that this can’t be good for the broader economy, and you’d be right. If household income and hence household spending is held down because labor gets an ever-smaller share of national income, while corporations, despite soaring profits, have little incentive to invest, you have a recipe for persistently depressed demand. I don’t think this is the only reason our recovery has been so weak — weak recoveries are normal after financial crises — but it’s probably a contributory factor.Just to be clear, nothing I’ve said here makes the lessons of history irrelevant. In particular, the widening disconnect between profits and production does nothing to weaken the case for expansionary monetary and fiscal policy as long as the economy stays depressed. But the economy is changing, and in future columns I’ll try to say something about what that means for policy.

Actually, They’re Not Headcount, They’re People – by Liz Ryan

A few years ago, some of the kids in our local high school fell into the unfortunate habit of referring to negative things and their least-favorite people using the modifier “gay.”

“Oh, your teacher lost your test and you have to do it over?” they’d say. “That’s gay.”

The gay-means-bad meme wasn’t confined to our neighborhood in Boulder, Colorado. It was (and may be still) a nationwide trend in the U.S., and the subject of newspaper articles, blog posts and talk show commentary.

It seems to me that kids have gotten better about using the word “gay” to signify bad things, and not a moment too soon. My middle-schooler tells me that he knows several gay kids in his class.

How harmful would it be to gay kids (and adults, for that matter) to have the word “gay” commonly used as a throwaway term for “sucky?” In response to the gay-is-negative trend, ads and speeches implored kids to stop using “gay” as a synonym for “bad.”

We know that language has power. Yet every day in the business world we read, speak, write and toss around business terms that are no less powerful in their impact than a teenager’s thoughtlessly pejorative use of “gay.” Sadly though, the tortured, damaging use of business language to marginalize and diminish people at work hardly even registers as a topic for business conversation.

Fledgling businesspeople quickly pick up the language of business. They sip it with their morning coffee until it takes over their brains and oozes out their fingers on the keyboard. They learn to write like drones and remove any trace of emotion or passion from their official correspondence.

Business language isn’t just a less colorful way to describe human things. Corporatespeak is as much a symbol and tool of corporate culture as spells and Quidditch are elements of the culture at Hogwarts School of Witchcraft and Wizardry.

Corporatespeak language is the hallmark of a worldview that treats numbers, rules and algorithms as sacred, and human emotions as tawdry and unbusinesslike. To be human, in the Godzilla world of formal-for-its-own-sake protocols and hierarchy, is to be soft. When I was an HR chief, I got accustomed to the insult “What do you know about business? You’re an HR person, the least businesslike person in the room. Stop whining about the team and the mojo level – you’re embarrassing yourself.”

Eventually, I saw that the easy use of soulless, robotic corporatespeak is a central part of the structure of fear and control that sucks so much human power out of organizations. When we call people “headcount,” we turn them into cells on a spreadsheet. It’s easier to treat people like objects when we label them that way.

My former CEO, Ray, wouldn’t let his managers use the term ‘headcount.’ “They are not headcount,” Ray would say. “They’re people.”

We won’t get to the Human Workplace until we change the glossary for life at work. When we stop talking about Headcount, Human Capital and Contingent Staff Ratios, we can begin to remember that we are people first and employees afterward.

We won’t get any smarter, more resilient or more productive by stuffing our manuals and reports with brainless business jargon. We won’t get any closer to finding our voices and our power until we can talk honestly about fear and trust, the stress we feel at work and the energy in the room. Corporatespeak has no place in that conversation.

Robotic business language is like the invasive plant species kudzu. It takes over vibrant, living things, envelops them and chokes the life out of them. It keeps green things and new ideas from growing.

If you want to shift the culture at your workplace, start with the language. Put a human voice in your employee handbook. Ask your youngest, least-tainted employee to rewrite every policy until it sounds as though a human being created it. Lose the passive voice (“It has been decided”) and speak to your employees and colleagues the way humans speak to one another. Your voice will get stronger, then. People might bring themselves to work once you prune the kudzu that squelches passion and stifles teamwork and momentum.

We don’t have to sound like zombies and robots at work. It is not good business to do that – it’s not professional, in the sense of giving our best to our customers and friends. Once you begin to put a human voice in your business, you’ll see the robot culture recede and human spark come roaring back.

Remember though: corporatespeak is pernicious. If you want to get rid of it, you have to tear it out by the roots, and work to prevent its return.


Why Do So Many Incompetent Men Become Leaders? – by Tomas Chamorro-Premuzic

In my view, the main reason for the uneven management sex ratio is our inability to discern between confidence and competence. That is, because we (people in general) commonly misinterpret displays of confidence as a sign of competence, we are fooled into believing that men are better leaders than women. In other words, when it comes to leadership, the only advantage that men have over women (e.g., from Argentina to Norway and the USA to Japan) is the fact that manifestations of hubris — often masked as charisma or charm — are commonly mistaken forleadership potential, and that these occur much more frequently in men than in women.

This is consistent with the finding that leaderless groups have a natural tendency to elect self-centered, overconfident and narcissistic individuals as leaders, and that these personality characteristics are not equally common in men and women. In line, Freud argued that the psychological process of leadership occurs because a group of people — the followers — have replaced their own narcissistic tendencies with those of the leader, such that their love for the leader is a disguised form of self-love, or a substitute for their inability to love themselves. “Another person’s narcissism”, he said, “has a great attraction for those who have renounced part of their own… as if we envied them for maintaining a blissful state of mind.”

The truth of the matter is that pretty much anywhere in the world men tend to think that they that are much smarter than women. Yet arrogance and overconfidence are inversely related to leadership talent — the ability to build and maintain high-performing teams, and to inspire followers to set aside their selfish agendas in order to work for the common interest of the group. Indeed, whether in sports, politics or business, the best leaders are usually humble — and whether through nature or nurture, humility is a much more common feature in women than men. For example, women outperform men on emotional intelligence, which is a strong driver of modest behaviors. Furthermore, a quantitative review of gender differences in personality involving more than 23,000 participants in 26 cultures indicated that women are more sensitive, considerate, and humble than men, which is arguably one of the least counter-intuitive findings in the social sciences. An even clearer picture emerges when one examines the dark side of personality: for instance, our normative data, which includes thousands of managers from across all industry sectors and 40 countries, shows that men are consistently more arrogant, manipulative and risk-prone than women.

The paradoxical implication is that the same psychological characteristics that enable male managers to rise to the top of the corporate or political ladder are actually responsible for their downfall. In other words, what it takes to get the job is not just different from, but also the reverse of, what it takes to do the job well. As a result, too many incompetent people are promoted to management jobs, and promoted over more competent people.

Unsurprisingly, the mythical image of a “leader” embodies many of the characteristics commonly found in personality disorders, such as narcissism (Steve Jobs or Vladimir Putin), psychopathy (fill in the name of your favorite despot here), histrionic (Richard Branson or Steve Ballmer) or Machiavellian (nearly any federal-level politician) personalities. The sad thing is not that these mythical figures are unrepresentative of the average manager, but that the average manager will fail precisely for having these characteristics.

In fact, most leaders — whether in politics or business — fail. That has always been the case: the majority of nations, companies, societies and organizations are poorly managed, as indicated by their longevity, revenues, and approval ratings, or by the effects they have on their citizens, employees, subordinates or members. Good leadership has always been the exception, not the norm.

So it struck me as a little odd that so much of the recent debate over getting women to “lean in” has focused on getting them to adopt more of these dysfunctional leadership traits. Yes, these are the people we often choose as our leaders — but should they be?

Most of the character traits that are truly advantageous for effective leadership are predominantly found in those who fail to impress others about their talent for management. This is especially true for women. There is now compelling scientific evidence for the notion that women are more likely to adopt more effective leadership strategies than do men. Most notably, in a comprehensive review of studies, Alice Eagly and colleagues showed that female managers are more likely to elicit respect and pride from their followers, communicate their vision effectively, empower and mentor subordinates, and approach problem-solving in a more flexible and creative way (all characteristics of “transformational leadership”), as well as fairly reward direct reports. In contrast, male managers are statistically less likely to bond or connect with their subordinates, and they are relatively more inept at rewarding them for their actual performance. Although these findings may reflect a sampling bias that requires women to be more qualified and competent than men in order to be chosen as leaders, there is no way of really knowing until this bias is eliminated.

In sum, there is no denying that women’s path to leadership positions is paved with many barriers including a very thick glass ceiling. But a much bigger problem is the lack of career obstacles for incompetent men, and the fact that we tend to equate leadership with the very psychological features that make the average man a more inept leader than the average woman. The result is a pathological system that rewards men for their incompetence while punishing women for their competence, to everybody’s detriment.